What We Like About RadioShack

We upgrade our recommendation for RadioShack Corp. (RSH) to Outperform based on our assessment that the company is likely to improve its earnings in the future quarters as a result of a significant boom in the wireless industry. RadioShack is one of the most experienced and trusted consumer electronics specialty retailers in the U.S. with approximately 4,470 company-operated stores; almost 1,300 dealer outlets; over 450 wireless phone kiosks throughout the U.S. and approximately 200 company-operated stores in Mexico.

The wireless category, which represents one-third of total sales, is likely to continue its impressive performance in the near future. RadioShack generated increased revenue from Sprint Nextel Corp’s (S) postpaid wireless business. The introduction of T-Mobile, a division of Deutsch Telekom AG (DT), in company-operated stores and Verizon Wireless (VZ) in Sam's Club Kiosks has enhanced RadioShack’s mobility proposition. The company now offers a broad range of products from AT&T (T), Sprint Nextel, T-Mobile, and Verizon Wireless. RadioShack has also started selling Apple Inc’s (AAPL) 3G iPhones in 10 company-operated stores. Management has decided on the nationwide availability of 3G iPhone in 2010.

RadioShack has an outstanding 5-year average return on equity (ROE) of 27.33%. Its average ROE for trailing twelve months is 20.8%, significantly higher than the industry average of just 16.2%. The company also pays a dividend, with a current yield of 1.28%. We expect the company’s Return on Invested Capital and free cash flow to increase in the future quarters due to the massive boom in the wireless industry.